Text PAQ 1.23 Audit reports

The responses below should be able to be applied to whichever company you may choose for this question … NOTE: you might take this as an opportunity to get you underway for Assessment Task 2a (check the instructions).

Required:

1. Explain the relevance of the paragraphs ‘Directors’ responsibility for the financial report’ and ‘Auditor’s responsibility’ in the audit report to the audit expectation gap.

These paragraphs highlight to readers that the directors of the company and the auditors have separate and distinct responsibilities. The directors are responsible for maintaining the accounting systems and preparing the reports, and the auditors are responsible for conducting an audit of these reports by evaluating their contents against the criteria of the accounting standards and relevant legislation. The auditor’s responsibilities do not include preparing the reports and the auditor must use judgement when choosing procedures and evaluating the evidence. See section 1.5 of your text and ASA200.4, A4-A13 (NOTE: your text refers to ASA200.A2 on p.22 which is a pre 2016 version of the standard).

1. Find the lines in the audit report that express the auditor’s opinion – is it an unqualified or modified audit opinion?

The paragraph is headed ‘Auditor’s opinion’, or just ‘Opinion’. If it states that in the auditor’s opinion the reports are consistent with the relevant legislation including giving a true and fair view of the financial position and performance of the company, the opinion is unqualified and unmodified. If it states otherwise, the type of opinion expressed will be mentioned and the reasons explained, meaning it will have been modified in a way required by that reason. See section 1.4 and relevant ASAs referred to therein (these will be studied in greater detail during Module 4).

1. Find the lines in the review report that express the auditor’s conclusion – is it an audit opinion? Is it a positive or negative statement?

The auditor expresses a conclusion, not an opinion, in the review report. It is not an opinion because they did not conduct an audit. The statement is a negative one – ‘we have not become aware… is not in accordance’. See section 1.3 and relevant standards referred to therein.

1. Make a list of the other differences between the audit report and the review report.

Other differences you may have noted might include:

• Interim report refers to AASB 134 on interim reporting, reference to IFRS in audit relates to adoption of those standards in the annual report.
• Audit report likely refers to audit of the Remuneration Report (the company does not make these disclosures in half-yearly report)
• Close reading of the description of the work done by the auditor will reveal that the procedures used for the interim report review are less comprehensive than those done for the full year audit (also see reference to ASRE 2410 in interim review). This is the main difference between the reports and why the audit report contains an opinion and the review report expresses a conclusion.